South Africa’s chrome, manganese and iron ore industries are facing a growing threat of a price bubble as the US administration spurs Chinese stockpiling of the steel-making ingredients.
In a recent note, the Minerals Council South Africa warned that China, which consumes about 80% of chrome and manganese and more than half of the world’s iron ore supply, has been “actively accumulating reserves of iron, chrome and manganese ore”, “motivated by concerns over supply security” and a “desire to exert influence on global pricing”.
Soaring export demand from a wary Chinese government in the wake of US President Donald Trump’s tariffs has put the local mining industry, home to a third of manganese supply and 70% of chrome resources, at a crossroads.
On one hand, Chinese buying has sparked a windfall for the local mining industry, resulting in export growth and bumper sales in recent years.
But if the status quo continues, in which a tiny fraction of this supply is beneficiated locally, South Africa faces a painful price plunge once China decides to use those stockpiles.
The critical mineral tug-of-war between the world’s two largest economies is nothing new, but it has markedly accelerated under Trump’s America-first agenda, extending into base and industrial metals.
Minerals Council chief economist Bongani Motsa said a price bubble, thanks to China’s policy-driven demand, is now a looming concern for the local mining industry, despite offering short-term benefits.
“The other side of artificially increased demand is reduced demand in the future. That could become a problem when China decides to start releasing its stockpiles,” he told Business Day.
The only real defence against this situation in the long term is to create an enabling environment for beneficiation at home, which, according to the council, really comes down to affordable electricity.
“There must be a strategy to attract the Chinese to come and invest in South Africa, just like they’ve done in Zimbabwe,” said Motsa.
“Zimbabweans have had the foresight to know that to beneficiate, they need the Chinese companies who buy their raw ore to invest in their country. We should also be offering serious incentives for Chinese companies to invest,” he said.
The recent offer of a 62c per kilowatt hour tariff was a good first step, he said, referring to Eskom’s proposal to offer a big discount to the electricity provided to Glencore’s ferrochrome smelters in a bid to stave off retrenchments and mothballing.
The proposed rate is more than 54% below the R1.36 rate previously paid by the smelters, and the intention is to extend similar discounts across South Africa’s distressed ferrochrome sector.
According to Motsa, there’s an appetite from the department to extend this sort of tariff relief beyond the distressed ferroalloys industry, using discounted power to revitalise an array of industries in which metal smelters and processors have been rendered uncompetitive over the past decade by above-inflation electricity tariff hikes.
“It’ll be like they are starting afresh,” said Motsa.
It is still to be seen whether these heady ambitions will be cleared by regulators. Since last week, the prospects of Glencore’s 62c tariff now lie in the hands of the National Energy Regulator of South Africa (Nersa). Only after its approval can sector-wide relief be discussed and each discount would be considered on a smelter-by-smelter basis, taking into account each operation’s breakeven point.
Still, Motsa believes that the 62c tariff could be the start of a new dawn in beneficiation.
“Electricity should be seen as an industrial policy instrument in this country,” he said.
“When Eskom was established in 1922-23, the objective was to provide cheap electricity for South Africa. That’s why we saw serious industrialisation in the country, and multinationals such as Sasol are products of using electricity as an industrial policy instrument.
“If we were to go back to that, I think we would see the reindustrialisation of South Africa, including beneficiation.”
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